Purpose: The loan is granted for the purpose of acquisition of land, site, plot and/or construction of dwelling apartments or office space with an intention to generate income by selling the same and clearing the loan out of such sale proceeds may be classified as Real Estate Advances as follows:
- Advances to Buildings
- Advances to property developers
- Advances for construction of housing/office/ commercial complexes, shops, flats, dwelling units/houses for the purpose of resale
- Advances to this sector shall not exceed 4% of the gross credit of the Bank
- Prior clearance shall be obtained from the sanctioning authority to entertain proposals under real estate sector since the Bank has to exercise caution in view of the high risk involved and restrictions communicated by RBI.
Repayment: The repayment shall not exceed 35 months period.
Minimum criteria:
- Loans to be project specific and the loan should invariably co-terminate with project completion and sale proceeds should clear the loan in full settlement.
- The borrower should already have been in this line of business with necessary proof of having executed such projects in the past preference shall be given to applicants who are existing clients of the Bank. New clients should be entertained on a very selective basis on merits.
- Value of the security both primary and collateral offered shall not be less than 200% of the limits sought.
- The margin should be 50% of the project.
- The average debt/equity ratio over the last 3 years should not have been more than 2:1.
- The average solvency ratio over the last 3 years should not have been more than 4:1.
- The prudential exposure limit shall not exceed two times the tangible net worth of the borrower.
- The end utilization should be ensured that the bank credit is used for production development/construction activity and not for activity connected with speculation in real estate.
- Take-over of accounts in this category is not permitted.